Service industry
Chapter 1
Learning objectives
- the importance and contribution of services to our world economy
- the driving forces behind the growth of services
- the characteristics that distinguish services from goods
- how these characteristics can be used to arrive at service classifications
Economists like to divide our industries into three sectors:
- The primary sector → farming, forestry and fishing
- The secondary sector → the industrial sector, including gas, mining and
manufacturing, electricity, water and construction
- The tertiary sector → the service sector
o Distributive services: transportation, communication and trade
o Producer services: investment banking, insurance, engineering,
accounting, bookkeeping and legal services.
o Social services: health care, education, non-profit organizations and
government agencies
o Personal services: tourism, dry cleaning, recreational services and
domestic services
Service industries are now the largest contributors to employment and gross
domestic product in most countries.
Driving forces behind the growth of services
Increasing consumer incomes and sociological changes have led to a greater
demand for services. Increasing professionalism in companies and technological
changes have brought about the creation of new services, notably of producer
services.
,People with higher incomes tend to spend more on services and less on goods
(Engel's law). Many new services have been created to fulfill the changing needs of
the different subgroups in our population. Another trend is the increase in life
expectancy (health care). Finally, legal advisers and income tax consultants have
become necessary due to the increasing complexity of life.
Produces services are the services used in the production process of both goods
and services, as opposed to consumer services, which are directed at the final
consumers. A lot of jobs have been outsourced to service companies and therefore
contribute to the service sector.
A closer look at services
Services Goods
- an activity or process - a physical object
- intangible - tangible
- simultaneous production and - separation of production and
consumption: customers participate in consumption
production
- heterogeneous - homogeneous
- perishable: cannot be kept in stock - can be kept in stock
Services are activities or processes characterized by two notions: intangibility and
simultaneity. Both characteristics also imply perishability and heterogeneity.
Intangibility
The result of a service is not a transfer of ownership. The service is an act or deed
we cannot take home with us. We can only take the effect of the service with us. The
intangibility of services makes products difficult to evaluate before and sometimes
after purchase. Zeithaml has developed a framework to clarify this issue. She
distinguishes three categories of qualities related to offerings:
1. Search qualities: attributes that a consumer can determine prior to purchase
2. Experience qualities: attributes such as taste and wearability that can only be
discerned after purchase or during consumption.
3. Credence qualities: attributes that the consumer may find impossible to
evaluate even after purchase and consumption.
The intangibility of services means that experience and credence qualities will tend
to dominate, whereas search qualities dominate in the choice of tangible products.
This also imposes challenges for marketers, the must make the intangible, tangible.
Simultaneity/ inseparability
The realization of a service implies the presence of provider as well as customers.
Services are produced and consumed at the same time. The at least partial overlap
between production and consumption means that there is personal contact during
the service delivery process; service employee and customer interact during the
service delivery process. How well services are provided depends on the
performance of the provider as well as the customer.
, Heterogeneity/ variability
Heterogeneity is related to the potential variability in the performance of services.
Heterogeneity can come from three possible sources:
1. The service provider: the service employee involved in the service delivery
process
2. The customer: the personal situation of the customer influences the
perception of the service.
3. The surroundings: external factors influence the customer’s perception of the
service
The complexity of the service does not allow for control of all the process
parameters, to ensure a consistent, high quality output. One option is to increase
quality control; however this is difficult for services. Better planning of the customer
encounter could reduce the degree of variability. The downside to this is the lack of
personalization.
Perishability
Services cannot be stored. This is not only due to their intangibility but also to the
limitations of simultaneous production and consumption. Demand for most services
is hard to predict.
Kotler
Governments offer services through courts, employment, hospitals, military services,
police and fire services and schools.
Private not-for-profit organizations offer services through museums, charities,
churches, colleges, foundations and hospitals.
Business organizations offer services, airlines, banks, hotels, insurance, companies,
consulting firms, medical and legal practices, entertainment and telecommunications
companies, property firms, retailers and others.
A company must consider four special service characteristics when designing
marketing programs:
- Service intangibility: service cannot be seen, tasted, felt, heard or smelled
before they are bought
- Service inseparability: services cannot be separated from their providers
- Service variability: the quality of the service depends on who provides them
and when, where and how
- Service perishability: services cannot be stored for later sale or use
Methods of classifying a service
Degree of intangibility
The higher the intangibility, the more difficulties customers experience when
evaluating the offering. Intangible things cannot be stored and are difficult to
standardize.
Degree of customer contact required
a flaw in a high contact service organization will have a direct influence on the
customer. Service employees have to be competent and communicative.
Chapter 1
Learning objectives
- the importance and contribution of services to our world economy
- the driving forces behind the growth of services
- the characteristics that distinguish services from goods
- how these characteristics can be used to arrive at service classifications
Economists like to divide our industries into three sectors:
- The primary sector → farming, forestry and fishing
- The secondary sector → the industrial sector, including gas, mining and
manufacturing, electricity, water and construction
- The tertiary sector → the service sector
o Distributive services: transportation, communication and trade
o Producer services: investment banking, insurance, engineering,
accounting, bookkeeping and legal services.
o Social services: health care, education, non-profit organizations and
government agencies
o Personal services: tourism, dry cleaning, recreational services and
domestic services
Service industries are now the largest contributors to employment and gross
domestic product in most countries.
Driving forces behind the growth of services
Increasing consumer incomes and sociological changes have led to a greater
demand for services. Increasing professionalism in companies and technological
changes have brought about the creation of new services, notably of producer
services.
,People with higher incomes tend to spend more on services and less on goods
(Engel's law). Many new services have been created to fulfill the changing needs of
the different subgroups in our population. Another trend is the increase in life
expectancy (health care). Finally, legal advisers and income tax consultants have
become necessary due to the increasing complexity of life.
Produces services are the services used in the production process of both goods
and services, as opposed to consumer services, which are directed at the final
consumers. A lot of jobs have been outsourced to service companies and therefore
contribute to the service sector.
A closer look at services
Services Goods
- an activity or process - a physical object
- intangible - tangible
- simultaneous production and - separation of production and
consumption: customers participate in consumption
production
- heterogeneous - homogeneous
- perishable: cannot be kept in stock - can be kept in stock
Services are activities or processes characterized by two notions: intangibility and
simultaneity. Both characteristics also imply perishability and heterogeneity.
Intangibility
The result of a service is not a transfer of ownership. The service is an act or deed
we cannot take home with us. We can only take the effect of the service with us. The
intangibility of services makes products difficult to evaluate before and sometimes
after purchase. Zeithaml has developed a framework to clarify this issue. She
distinguishes three categories of qualities related to offerings:
1. Search qualities: attributes that a consumer can determine prior to purchase
2. Experience qualities: attributes such as taste and wearability that can only be
discerned after purchase or during consumption.
3. Credence qualities: attributes that the consumer may find impossible to
evaluate even after purchase and consumption.
The intangibility of services means that experience and credence qualities will tend
to dominate, whereas search qualities dominate in the choice of tangible products.
This also imposes challenges for marketers, the must make the intangible, tangible.
Simultaneity/ inseparability
The realization of a service implies the presence of provider as well as customers.
Services are produced and consumed at the same time. The at least partial overlap
between production and consumption means that there is personal contact during
the service delivery process; service employee and customer interact during the
service delivery process. How well services are provided depends on the
performance of the provider as well as the customer.
, Heterogeneity/ variability
Heterogeneity is related to the potential variability in the performance of services.
Heterogeneity can come from three possible sources:
1. The service provider: the service employee involved in the service delivery
process
2. The customer: the personal situation of the customer influences the
perception of the service.
3. The surroundings: external factors influence the customer’s perception of the
service
The complexity of the service does not allow for control of all the process
parameters, to ensure a consistent, high quality output. One option is to increase
quality control; however this is difficult for services. Better planning of the customer
encounter could reduce the degree of variability. The downside to this is the lack of
personalization.
Perishability
Services cannot be stored. This is not only due to their intangibility but also to the
limitations of simultaneous production and consumption. Demand for most services
is hard to predict.
Kotler
Governments offer services through courts, employment, hospitals, military services,
police and fire services and schools.
Private not-for-profit organizations offer services through museums, charities,
churches, colleges, foundations and hospitals.
Business organizations offer services, airlines, banks, hotels, insurance, companies,
consulting firms, medical and legal practices, entertainment and telecommunications
companies, property firms, retailers and others.
A company must consider four special service characteristics when designing
marketing programs:
- Service intangibility: service cannot be seen, tasted, felt, heard or smelled
before they are bought
- Service inseparability: services cannot be separated from their providers
- Service variability: the quality of the service depends on who provides them
and when, where and how
- Service perishability: services cannot be stored for later sale or use
Methods of classifying a service
Degree of intangibility
The higher the intangibility, the more difficulties customers experience when
evaluating the offering. Intangible things cannot be stored and are difficult to
standardize.
Degree of customer contact required
a flaw in a high contact service organization will have a direct influence on the
customer. Service employees have to be competent and communicative.
